(EnergyAsia, July 30 2012, Monday) — PetroChina’s pursuit of a stake in a proposed refinery in Ecuador shows that Chinese oil companies are looking to expand their downstream as well as upstream presence abroad, said UK consulting firm GlobalData.
While discussions with the Ecuadoran government, PetroEcuador and Petroleos de Venezuela have just started, PetroChina is reported to be a stakeholder in the proposed 300,000 b/d refinery worth some US$12.5 billion.
According to GlobalData, Ecuador is interested to develop the Pacifico refinery at El Aromo, south of Guayaquil, to supply both its domestic needs as well as neighbouring countries and even Asia. This capability is likely what attracted PetroChina to make a play for the potential investment.
“The Chinese oil companies have looked abroad for assets in which to invest over the last decade for many reasons, chief among them as hedges against price controls at home. Chinese oil companies have built, and are continuing to build, sophisticated refining capacity in a bid to cover increasing demand for gasoline, diesel and jet fuel from a rising middle class as the country grows richer,” said GlobalData.
In 2000, China’s total refining capacity was 4.5 million b/d and the country was a net importer of refined products from many of its neighbours. By the end of this year, with new-build refinery construction and capacity additions in place, China’s total refining capacity is expected to be reach just under 10 million b/d.
By 2017, the country could boost its refinery capacity rise to 13.5 million b/d, provided all planned capacity additions are built. By contrast, the US will have 19.1 million b/d of refining capacity by 2017.
PetroChina, and parent Chinese National Petroleum Corporation, have been especially active over the last decade, purchasing a 49% stake in Japan’s Osaka refinery from Nippon Oil in 2009; a 50% stake in Ineos Refining that included plants in Grangemouth (UK) and Lavera (France); a 67% interest in PetroKazakhstan, including its Shymkent refinery; and a 22.76% stake in Singapore Refining Company.
PetroChina is also the majority partner in the Adrar refinery in Algeria.
The company is rumoured to be interested to acquire Valero’s Aruba refinery that was was shut down last April owing to dismal margins.
PetroChina can effectively hedge its results in these markets outside of China as it will be allowed to pass along crude oil price increases to customer through higher refiner product prices.
Sinopec and South Africa’s PetroSA are in preliminary discussions to jointly build a 380,000 b/d refinery in Coega Bay, South Africa. Tentatively scheduled to be complete by 2020, this refinery would process Atlantic Basin crude oils to not only meet South Africa’s fuel needs, but supply into markets in the Atlantic and Indian Oceans.
Sinopec has a 37.5% interest in Saudi Aramco’s 400,000 b/d refinery at Yanbu, which is under construction and slated to start up by 2015. Sinopec became the minority partner in this project after ConocoPhillips pulled out in 2009.
Sinopec is also in talks to buy a 10% stake in Spanish integrated oil company Repsol, although that deal has not closed yet.
Chinese oil product demand has grown steadily since 2004, with gasoline demand peaking in February of this year at 1.9 million b/d, according to International Energy Agency data. In contrast, China’s February 2004 gasoline demand was 1.1 million b/d.
Chinese diesel/gas oil demand likewise peaked at 3.6 million b/d in November 2011, from 1.8 million b/d in January 2004. The country’s kerosene demand hit its peak demand at 357,000 b/d in January 2011, from January 2004’s level of 223,000 b/d.
Most Chinese oil companies have set up trading arms in the major commerce centres of London, New York, Switzerland, Singapore, Dubai and Houston and are actively engaged in trading cargoes, barges and pipeline positions of crude oil and refined products.
By having physical assets in place in key locations around the world along with trading acumen, the Chinese companies are in a much better position to supply the needs of their country’s increasingly energy-hungry population, said GlobalData.